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Gold Slides as Fresh Yen Weakness Boosts Dollarby Peter A. Grant
May 17, AM 
Gold is under pressure once again, slipping to new four-week lows as the dollar index charged ahead to levels not seen since June of 2010. The greenback was buoyed by some better than expected U.S. data today, but perhaps more significantly by renewed yen weakness.Prime Minister Shinzo Abe announced today that Japan would seek to triple infrastructure exports and double farm exports by 2020. While Abe and his guy at the BoJ, Haruhiko Kuroda, have adamantly denied they are manipulating the yen lower in order to boost export share, it sure seems like that's exactly what they're doing. The very first element of what is now being widely referred to as Abenomics was a massive expansion of the BoJ's quantitative easing. As one of his first orders of business, PM Abe installed a like-minded monetary dove to head the BoJ, and Kuroda promptly delivered a pledge to double Japan's monetary base over the next two years. Double the supply of anything and the price is likely to drop. The yen "has dropped 30pc against the dollar and China’s yuan since August, and 37pc against the euro," reported Ambrose Evans-Pritchard in a Telegraph story yesterday. Apparently the yen's decline is merely an unintentional byproduct of their aggressive efforts to halt decades of deflation in Japan. Interesting that Japan now seeks to capitalize on said yen weakness to dramatically boost exports; after all it would be a cryin' shame to let all that currency debasement go to waste. Yes indeed, the currency wars continue to escalate and the gist of Evans-Pritchard's article is about the broader threat that the yen's slide poses to Asia. South Korea recently retaliated with an interest rate cut, and both Taiwan and China have expressed displeasure with Japan's actions. In light of Japan's ongoing territorial disputes with both the PRC and Taiwan, tensions in general are rising in the region. This could turn ugly in a hurry. A race to the bottom could begin in earnest, particularly given the early signs of success that Japan has realized. Japan's GDP jumped 0.9% in Q1, resulting in a 3.5% annualized pace. Pretty impressive results that might just be the envy of other industrialized nations (or unions) that are also seeking to stimulate growth. And given that this growth may actually be coming at least partially at the expense of Japan's trading partners, there might be the temptation to employ similar monetary policies. Why should Japan enjoy all the benefits simply because they were prepared to go bigger and badder first? At this moment, the currency war is manifesting as dollar strength, which in turn is pressuring gold. There's certainly more to the heavy gold market than dollar strength alone, but it is a significant part. A stronger dollar is probably the last thing the Fed and the Treasury Department want to see at this point, as our economy continues to seek some traction. I therefore believe one of the tenant presently weighing on the yellow metal, that the Fed is on the verge of beginning a phased withdrawal of accommodations, is actually rather unlikely. Such a move would likely accelerate the rise in the dollar, further eating into exports, and sapping growth. That's something that the Fed is simply unlikely to foster. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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